CEOs Rake It In When Their Companies Tank
Some Say 'Game Is Rigged' in Favor of CEOs Who Profit When Their Companies Founder
By DAN HARRIS
April 30, 2008—
Being a CEO these days, according to the people at Forbes magazine, is like playing on a kiddie soccer team: everyone gets a prize ... often a very expensive prize.
"Supposedly, you get paid for performing in corporate America — but you don't," Forbes senior editor Neil Weinberg said. "It's like a fourth grade soccer league where everyone gets a trophy."
Forbes ranked the worst performing CEOs in America by comparing executive pay to stock performance.
The magazine's list of "Worst Performing Bosses" includes James Tobin, CEO of Boston Scientific, who made an average of $8.2 million while his company stock inched up by an average of 1 percent. It also included Kevin Sharer of the Biotech company Amgen, who made an average of $12.3 million a year while his company's stock dropped, on average, 4 percent a year. Another CEO on the list, Michael Perry of Indymac Bancorp, raked in $6.8 million while his company's stock plummeted 23 percent.
But the best paid, worst performing CEO, according to Forbes, is Angelo Mozilo of Countrywide, the nation's largest home lender. He raked in an average of $66 million a year while his company nearly collapsed, the stock falling an average of 9 percent a year. That's not including the hundreds of millions he got cashing in his own company stock.
"The fact that he has been making so much money, $102 million a year over the last year, is what people find egregious," Weinberg said. "They can't understand why this company is melting down, why it's having to be rescued from virtual bankruptcy. yet this man, who's been talking up the company, has been selling stock, is not really paying the price for it."
CEOs have advantages that the average American worker does not, that might allow them to get paid for failure. Critics say that all too often, boards of directors, which set CEO pay, are filled with the CEO's cronies.
"It's a very incestuous business," Weinberg said. "People are on each other's boards, they are hired by the chief executive, they are thankful to be a part of the club.
Overall, CEOs were paid 15 percent less last year, but they still make more than 10 times the amount they did two decades ago. In 1980, the average CEO once made 40 times what the average worker makes. Now it's 433 times, and many CEOs get paid handsomely, even if they fail.
When Gary Forsee, the CEO of Sprint, was fired, he got $40 million, an $84,000-a-month pension for life, and help finding a new job as a university president.
Weinberg said it's all evidence that, in the business world, "the game is rigged" in favor of CEOs. But some say there have been major reforms in recent years and that most CEOs are fairly compensated.
John Castellani, president of the Business Round Table, said that evaluating CEO performance is more complex than Forbes makes it out to be.
"The outliers are just that — outliers. You have to look at the preponderance of CEOs and how they're performing and how their pay matched performance."
But Weinberg says the examples in his article show there need to be serious changes before CEOs are no longer paid for failure. Most notably, he says, shareholders should be able to vote on who sits on corporate boards, something the Securities and Exchange Commission proposed, but corporate leaders fought tooth and nail to defeat.
"It's called shareholder democracy right, and that's what we need in this country," Weinberg said. "We have something more akin to [President Vladimir] Putin in Russia right now than we do to a representative democracy."
Only when there's democracy in corporate America, he says, will the playing field truly be level.